NextGen Day

Even though the Philippines saw stronger-than-expected growth last year, it should exercise caution due to a lack of catch-up in numerous economic areas and election-related uncertainty.

Pantheon Macroeconomics said in a report that while Philippine economic momentum was strong in the run-up to 2022, the country would continue to have a difficult recovery path.

In 2021, the economy expanded by 5.6 percent, owing mostly to a 7.7 percent rise in the fourth quarter as mobility improved amid fewer COVID instances.

“However, we advise using extreme caution when assessing the fourth-quarter GDP by its cover. “When the known unknowns are removed, the headline growth rates lose a lot of their luster,” Pantheon senior Asia economist Miguel Chanco said, adding that “several of the important specifics in the fourth quarter leave a lot to be desired.”

Fixed investment, in particular, expanded by only 1.2 percent quarter over quarter, with catch-up growth being significant given that it is still roughly 20% below its pre-pandemic peak.

Chanco also stated that capital expenditures looked to have reached an early maximum, implying that election-related uncertainty has slowed company spending a quarter earlier than predicted.

“Overall, we estimate the Philippine economy to underperform this year, rising by only 4.5 percent,” he said, citing the likely prolonged slowdown in investment growth as one of the primary causes.

This prediction is well below the government’s objective of 7% to 9% growth in 2022.

In light of this, Pantheon believes the Bangko Sentral ng Pilipinas is unlikely to begin normalizing policy this year, particularly because inflation is expected to continue within the two to four percent target range for the remainder of 2022.

“The Bangko Sentral ng Pilipinas is unlikely to want to add insult to injury by raising interest rates at the same time as financial support is being withdrawn,” Chanco added.

“The government’s finances are severely squeezed.” “The only major component in the fourth quarter that did not demonstrate genuine quarterly growth was government spending,” he said.

The thinking group also stated that the slowing rate of immunization poses a greater long-term hazard to consumption than Omicron.

Only approximately 0.5 percent of the population is currently receiving daily vaccinations, compared to one percent in mid-December.

While neighboring Southeast Asian nations like Vietnam and Thailand have seen a slowdown, 73 percent and 68 percent of their people have been fully vaccinated, respectively. In the Philippines, only a little more than half of the population is employed.

“The risk is that for the foreseeable future, a large portion of the population will be excluded from daily economic activity,” Chanco added.

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